The extent to which the available supply of labour is utilised is an important social and economic issue. From a social viewpoint, concern centres around the number of people whose aspirations for work are not being met. From an economic perspective, there is interest in measuring the extent to which available labour resources are not being fully utilised within the economy.

The number of unemployed people and the unemployment rate are widely used measures of the available labour resources that are not currently utilised in the economy. However, these measures do not represent the full extent of labour underutilisation. As a result, the ABS has produced a series of broader measures that include other groups of people whose labour is underutilised, such as underemployed workers and discouraged jobseekers.

The ABS produces labour underutilisation measures based on the number of people whose labour is underutilised (headcount measures), and the number of hours of available labour that are underutilised (volume measures).

Headcount measures of labour underutilisation

The ABS has developed a series of supplementary measures of labour underutilisation which are formed by combining information on unemployed people with that of other groups whose labour is underutilised. There are five measures: the unemployment rate; the long-term unemployment rate; the underemployment rate; the labour force underutilisation rate; and the extended labour force underutilisation rate. These are headcount measures and provide an indication of the proportion of the population affected by labour underutilisation.

Underemployment rate - the number of underemployed workers as a proportion of the labour force.

Underemployed people include part-time workers who want, and are available to work, more hours, and full-time workers who worked part-time hours in the reference week for economic reasons. Table 8.44 shows there were more than half a million (544,600) underemployed people in September 2006. The underemployment rate was higher for women than men (6.3% and 4.0% respectively). This is related to the higher proportion of women who are in part-time employment.

Labour force underutilisation rate - the sum of the unemployed and the underemployed, expressed as a proportion of the labour force.

In September 2006 the labour force underutilisation rate was 9.8%. Women had a higher labour force underutilisation rate than men (11.1% compared with 8.7%), reflecting their higher rate of underemployment.

Extended labour force underutilisation rate - the sum of the unemployed, the underemployed, and two groups of people marginally attached to the labour force, as a proportion of the labour force augmented by those two groups.

The two groups of marginally attached people are: people actively looking for work, not available to start work in the reference week, but available to start within four weeks; and discouraged jobseekers. This is the broadest of the ABS measures of underutilised labour. In September 2006 the extended labour force underutilisation rate was 10.6%. The extended labour force underutilisation rate was higher for women than men (12.1% compared with 9.3%), not only because women had a higher rate of underemployment, but also because women were more likely to be in the marginally attached populations that contribute to this rate.

8.44 LABOUR UNDERUTILISATION - September 2006

Males

Females

Persons

Unemployed

'000

284.8

235.8

520.6

Long-term unemployed

'000

51.2

36.1

87.4

Underemployed

'000

236.3

308.3

544.6

Marginally attached to the labour force(a)

Actively looking for work, not available in reference
week but available to start work within four weeks

'000

15.4

21.9

37.3

Discouraged jobseekers

'000

20.4

35.8

56.1

Labour underutilisation rates

Long-term unemployment rate(b)

%

0.9

0.7

0.8

Unemployment rate(c)

%

4.8

4.8

4.8

Underemployment rate(d)

%

4.0

6.3

5.0

Labour force underutilisation rate(e)

%

8.7

11.1

9.8

Extended labour force underutilisation rate(f)

%

9.3

12.1

10.6

(a) Marginal attachment to the labour force includes only a subset of all marginally attached people.

(b) The long-term unemployment rate is the long-term unemployed (persons unemployed for 12 months or more) expressed as a proportion of the labour force.

(c) The unemployment rate is the unemployed expressed as a proportion of the labour force.

(d) The underemployment rate is the underemployed expressed as a proportion of the labour force.

(e) The labour force underutilisation rate is the unemployed, plus the underemployed, expressed as a proportion of the labour force.

(f) The extended labour force underutilisation rate is the unemployed, plus the underemployed, plus a subset of persons marginally attached to the labour force, expressed as a proportion of the labour force augmented by the marginally attached persons.

Overall, movements in unemployment are the primary drivers of movements in the headcount measures, although underemployment has been increasing in relative importance in recent years, particularly for women.

8.45 Labour underutilisation rates - September

Differences in labour underutilisation between states and territories are primarily driven by differences in both unemployment and underemployment rates. In September 2006, Tasmania (13.4%), South Australia (10.8%) and New South Wales (10.6%) all had labour force underutilisation rates above the national average (9.8%) (table 8.46).

8.46 LABOUR UNDERUTILISATION, By states and territories - September 2006

Long-term unemployment rate(a)

Unemployment rate(b)

Underemployment rate(c)

Labour force underutilisation rate(d)

Extended labour force underutilisation rate(e)

%

%

%

%

%

New South Wales

1.0

5.5

5.1

10.6

11.5

Victoria

0.8

4.7

5.0

9.7

10.5

Queensland

0.6

4.5

4.9

9.4

10.1

South Australia

0.7

4.7

6.1

10.8

11.6

Western Australia

0.3

3.4

4.1

7.5

8.3

Tasmania

2.1

7.2

6.2

13.4

14.7

Northern Territory

*0.1

*2.6

2.6

5.2

5.7

Australian Capital Territory

*0.4

2.6

4.0

6.5

6.7

Australia

0.8

4.8

5.0

9.8

10.6

* estimate is subject to sampling variability too high for most practical purposes

(a) The long-term unemployment rate is the long-term unemployed (persons unemployed for 12 months or more) expressed as a proportion of the labour force.

(b) The unemployment rate is the unemployed expressed as a proportion of the labour force.

(c) The underemployment rate is the underemployed expressed as a proportion of the labour force.

(d) The labour force underutilisation rate is the unemployed, plus the underemployed, expressed as a proportion of the labour force.

(e) The extended labour force underutilisation rate is the unemployed, plus the underemployed, plus a subset of persons marginally attached to the labour force, expressed as a proportion of the labour force augmented by the marginally attached persons.

Labour underutilisation can also be measured in terms of the number of potential hours of labour that are not used. Such 'volume' measures represent the quantity of unutilised available labour (rather than the number of people affected) and may be more relevant for analysing the spare capacity of the labour force than measures based on the number of people whose labour is underutilised. The volume of underutilised labour in the labour force is defined as the preferred number of hours of unemployed people plus the preferred number of additional hours of work of underemployed workers. The volume labour force underutilisation rate is the ratio of the number of hours that are unutilised to the total number of utilised and unutilised hours in the labour force.

Table 8.47 provides experimental volume measures of labour force underutilisation for September 2006. Separate rates relating to the volume of unemployment and the volume of underemployment can also be calculated from the way the volume labour force underutilisation rate is derived. For all three underutilisation measures (i.e. unemployment, underemployment and labour force underutilisation), the experimental volume rates were lower than the corresponding headcount rates.

8.47 VOLUME MEASURES OF LABOUR UNDERUTILISATION(a) - September 2006

Males

Females

Persons

Volume of potential labour in the labour force

Unemployed persons (hours of work sought)

'000 hours

9 123.2

6 276.1

15 399.4

Underemployed workers (additional hours of work offered)

'000 hours

4 024.5

4 228.4

8 252.9

Employed persons (usual hours of work performed)(b)

'000 hours

232 675.4

144 911.4

377 586.8

Total(c)

'000 hours

245 823.2

155 415.8

401 239.0

Volume measures of labour force underutilisation

Volume unemployment rate

%

3.7

4.0

3.8

Volume underemployment rate

%

1.6

2.7

2.1

Volume labour force underutilisation rate

%

5.3

6.8

5.9

(a) Experimental estimates, based on the number of preferred hours of work.

(b) Actual hours worked in the reference week for underemployed full-time workers and usual hours worked for all other employed persons.

(c) The volume of potential labour in the labour force is equal to the preferred hours of unemployed persons, plus the preferred hours of underemployed workers (both utilised and unutilised), plus the hours of labour usually provided by employed persons who are not underemployed.

In September 2006, the preferred hours of the unemployed (15.4 million hours) formed the largest component (65%) of the volume of underutilised labour in the labour force. The preferred additional hours of the underemployed (8.3 million hours) formed the remainder. Table 8.48 shows the average number of preferred weekly hours of the two population groups included in the volume measures. On average, unemployed people preferred to work 30 hours a week, with men preferring 32 hours compared with 27 hours for women. In contrast, underemployed people preferred to work an average of 15 hours of additional labour, with men again preferring more hours than women (17 hours and 14 hours respectively).

Unlike the headcount measures of underutilised labour, the experimental volume measures take into account the preferred number of hours and this has the effect of weighting people according to the number of hours that they either worked or preferred. For example, the large difference between the headcount and volume underemployment rates (5.0% and 2.1% respectively) reflects the large difference between the additional hours preferred by the underemployed (15.1 hours a week) and the hours worked by the employed (36.4 hours).

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